Nasdaq, S&P 500 end at almost 14-month high ahead of this week’s inflation data, Fed decision

What drove markets

Stocks extended their recent rally on Monday, though the positivity was tinged with caution ahead of a week littered with potential tripwires. On this week’s packed calendar are updates on the U.S. consumer- and producer-price indexes, three major central-bank decisions and the retail-sales report for May.

“The market may have taken a bit of a vacation last week, but it could be back on the clock this week — the latest inflation numbers, a Fed interest-rate decision, and retail sales are all set to hit the Street,” Chris Larkin, managing director for trading and investing at E-TRADE from Morgan Stanley, said in emailed comments.

The S&P 500 added to its recent rally after reaching its highest close in 10 months on Friday. It has advanced for four straight weeks as investors become more hopeful that the U.S. economy can avoid a sharp economic slowdown and that easing inflation will enable the Federal Reserve to pause its monetary-tightening cycle. Last Thursday, the large-cap benchmark met the criteria for exiting a bear market, after ending more than 20% above its October closing low.

Read: It’s a ‘bull market’ for stocks. Here’s what that means.

Small-cap stocks also rallied as recession fears appeared to fade. The small-cap Russell 2000
RUT,
+1.23%
advanced 0.5% on Monday after rising 1.9% last week, outpacing the 0.1% weekly gain for the tech-heavy Nasdaq Composite. Analysts have looked for gains to broaden out beyond the tech sector to sustain the stock market’s rally, and that bullish narrative will be put to the test in coming days.

“We saw small- and midcap stocks turning a corner and march into overbought territory fairly quickly, and the market has been broadening out a bit more than three weeks ago,” said Quincy Krosby, chief global strategist for LPL Financial.

“Volume has picked up, which indicates much more confirmation in the market’s advance,” Krosby said via phone. “Granted, some of that may be due to short covering and fear of missing out, but there’s also an element of belief that this market can continue its ascent, even with the understanding that it could hit volatility on the path higher.”

The consumer-price index for May will be published on Tuesday. Investors will be hoping to see annual CPI inflation — which hit an almost 41-year high of 9.1% last June and dropped to 4.9% in this April — fall further, with economists forecasting a dip to 4%.

Such a decline would likely cement the market’s expectations that the Fed will leave interest rates unchanged at a range of 5% to 5.25% after the conclusion of its meeting on Wednesday.

“We are in a wait-and-see mode, and a lot is going to depend on the CPI report tomorrow and whether we are going to see components of inflation moderating,” said Venkat Balakrishnan, head of asset allocation at MissionSquare Retirement, a Washington, D.C.-based firm that oversees about $68 billion in assets.

“It’s very hard to predict what one inflation print will show us, but we could see many components trending down, which could have an impact on rates,” he said in a phone interview. “There’s widespread expectation for a pause by the Federal Reserve on Wednesday, but it will be more important what policy makers say about the next meeting” in July. 

See: How a hawkish Fed could kill a baby bull-market rally in U.S. stocks

In addition to the Fed, there are also announcements to navigate from the European Central Bank on Thursday and the Bank of Japan on Friday. The former is expected to raise rates by another 25 basis points and the latter is forecast to stand pat.

Also read: Fed will keep raising rates, even if it skips a June hike

Companies in focus

• Tesla Inc.
  TSLA,
  +3.55%
  shares ended up by 2.2% for a 12th straight daily gain. That is the longest streak of gains on record, based on data going back to June 29, 2010, according to Dow Jones Market Data. On Monday, the electric-vehicle giant’s stock closed at its highest since Sept. 30, 2022.

• Shares of Nasdaq Inc.
  NDAQ,
  +0.12%
  finished 11.8% lower after the securities-trading, -clearing and -listing company announced an agreement to buy software company Adenza for $10.5 billion in cash and stock from Thoma Bravo. 

• Illumina Inc.
  ILMN,
  -0.62%
  shares closed up by 3.8% after the company announced on Sunday that its board had accepted the resignation of Francis deSouza as CEO, effective immediately.

—Jamie Chisholm contributed.